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DOE energy conservation investigations

Businesses may be facing exposure on the basis of practices believed to be lawful for the last 35 years. In 2011, the Department of Energy (DOE) launched a rigorous campaign of regulatory enforcement seeking to impose penalties on manufacturers, distributors and private labelers for perceived failures to satisfy federally mandated energy and water conservation standards and reporting requirements. Now, the DOE may unilaterally enforce its regulations even when it has not received any complaints. Those regulations require compliance with the standards and particularized reporting through a DOE-specific system. Moreover, the DOE is creating testing policies that are inconsistent with many longstanding industry-consensus standards and practices that may require manufacturers to redesign their products and re-evaluate their certification filings. The DOE can impose extraordinary fines against manufacturers, distributors and private labelers—such as recent individual penalties as high as $1,920,200.

Are You Covered by the Requirements?

Under the aegis of the Energy Policy and Conservation Act, the DOE has issued standards for products, including air conditioners and heat pumps, water heaters, refrigerators and freezers, dishwashers, microwaves, clothes washers and dryers, faucets, showerheads and lamps.

Liability for alleged noncompliance is not limited to domestic manufacturers. Instead, these same standards apply with equal force to companies that import goods from abroad or privately label goods in the United States. In transactions involving a foreign manufacturer, the domestic party—usually an importer—will bear responsibility for certification and compliance and will face any resulting fines and enforcement costs alone.

Energy and Water Conservation Regulations

Covered entities are subject to conservation standards, certification requirements, testing and specialized labeling rules. A covered party could be fined as much as $200 per allegedly noncompliant unit distributed in commerce. Multiplied by the thousands or tens-of-thousands of units distributed by most covered parties, these fines can quickly reach astronomical levels. Further, if the DOE finds alleged violations of Energy Star standards during its independent testing, it may report those violations to the Environmental Protection Agency (EPA).

Before distributing any new class of product, a manufacturer or importer must submit certification reports confirming that each model satisfies the applicable standards. The report must include detailed information about the product, its manufacturer and the required testing completed. This process must be repeated annually, at specific times determined by the type of product. Penalties for noncompliance are substantial—a company may be fined up to $200 per day for each class or model of a given product that is allegedly noncompliant.

Additionally, because imported products are subject to these standards, the Department of Homeland Security has recently proposed amendments to U.S. Customs and Border Protection (CBP) regulations that would allow CBP to refuse admission to noncompliant products when they come through CBP. Under the current proposed rules, the DOE or the Federal Trade Commission (FTC) can notify CBP to refuse admission of certain noncompliant products.

Current Enforcement Campaign Is Underway

The DOE recently launched aggressive investigations targeting a range of covered products through unannounced, secret testing in its laboratory in Plano, Texas. The initial round of enforcement cases was directed at a large number of manufacturers of faucets, showerheads, air conditioners and other products, which resulted in millions of dollars in fines and settlements.

The DOE has multiple tools at hand to enforce compliance. The DOE can independently issue subpoenas and requests for data, force manufacturers to provide units for testing, undertake secret testing that manufacturers are not allowed to observe, make noncompliance determinations, impose civil penalties and issue unilateral administrative injunctions prohibiting manufacturers from distributing products in commerce. If the DOE determines that a product is not in compliance with its applicable standards, it will demand that the manufacturer withdraw the entire product line from distribution. If the manufacturer continues to distribute its product, the DOE can ask a court to compel a recall or to enjoin distribution of the product.